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Baebies Hauls In $13M For Newborn Screening Technology

Tue, 07/28/2015 - 12:43

Baebies, a diagnostics developer aiming to make neonatal screening easier and more widely accessible, has raised $13 million in equity financing as the company moves forward developing and testing its technology.

The Durham, NC-based company said investors in the oversubscribed round included Rex Health Ventures; DUMAC, an investment group controlled by Duke University; Cunning Capital; Triad, LLC; and the Duke Angel Network. Baebies also received a $500,000 strategic growth loan from the North Carolina Biotechnology Center.

Baebies is developing a screening platform that employs microfluidics, the science of working with tiny amounts of fluid, such as blood. The company’s platform consists of a benchtop analyzer and software that runs tests on samples in digital microfluidic cartridges. It’s the same technology that CEO Rich West worked with as the top executive of Advanced Liquid Logic, a Duke University microfluidics spinout that was acquired by San Diego-based Illumina (NASDAQ: ILMN) for $96 million in 2013.

The Baebies team includes Advanced Liquid Logic alums, such Baebies as co-founder and president Vamsee Pamula. The company licensed the microfluidics technology back from Illumina, which has an equity stake in Baebies. The license does not include any of Illumina’s gene sequencing technology, but Baebies received some equipment and contracts from Illumina.

Baebies says it aims to test for rare, inherited diseases in newborns. By finding these diseases earlier, the company says treatment can begin sooner and lives can be saved. The Baebies technology could also be seen as a companion diagnostic. The company says that its technology can test for rare diseases now addressed by newly developed therapies from pharmaceutical companies.

The company sees opportunity in providing testing capabilities in states that require newborn screening. Under North Carolina law, for example, all newborns are tested for 36 conditions and inherited diseases, including cystic fibrosis, sickle-cell disease, and amino acid disorders. In states that require newborn screening, the average number of tests is 43, West said at the CED Life Sciences Conference in Raleigh, NC, in March. The Baebies technology is still investigational and does not yet have FDA clearance. At the conference, West said the company’s technology was in pilot trials in three state public health laboratories.

In addition to screening for rare diseases in newborns in the Western world, Baebies sees its technology offering screening capabilities globally in emerging markets that do not yet have laboratory testing infrastructure. West said that Baebies products will make newborn screening accessible to the more than 100 million children born each year that do not have access to such screening.

“The extra ‘e’ [in Baebies] is for everyone,” West said. “We believe everyone deserves a healthy start.”

Photo courtesy of Flickr user Danny Cain under a Creative Commons license.

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ServiceNow Founder and Investor Offer Lessons in Startup Growth

Tue, 07/28/2015 - 11:12

After Fred Luddy founded ServiceNow in 2003, he was still a little shell-shocked from his experience as the CTO of San Diego’s Peregrine Systems.

Luddy had spent 13 years developing Peregrine’s asset management product before the high-flying enterprise software giant collapsed in a corporate accounting scandal in 2002. When a new management team finally calculated the extent of the fraud as part of Peregrine’s bankruptcy reorganization, Luddy said his Peregrine fortune was “zero.” He estimated that his stake in the company had amounted to $35 million just a few years earlier, when he was 40.

Now Luddy is 60, and he has a pretty good comeback story—which he told last week in a special presentation to the San Diego Venture Group. It was a relatively rare public appearance for Luddy, and was billed as “a fireside chat” with Paul Barber, the San Diego-based managing general partner of JMI Equity, the investment firm (and related entitites) that provided the initial $9.3 million in startup funding to ServiceNow.

In the 13 years since Luddy started ServiceNow, the company has grown into a software industry juggernaut, with roughly 3,400 employees and a current market valuation of nearly $12 billion. At the time of ServiceNow’s initial public offering in 2012, Luddy owned a 9 percent stake in the company (about 13.4 million shares), and Forbes estimated his net worth at $400 million.

ServiceNow’s software, like Peregrine’s, helps big companies and organizations manage their help desk and IT services.

But where Peregrine installed its enterprise software on its customers’ internal networks, ServiceNow was among the software companies pioneering cloud-based, software-as-a-service. The company has expanded over time into more of a platform-as-a-service, and now provides Web-based software used by big organizations to manage their human resources, legal, and financial services. The company also enables customers to easily develop their own forms-based workflow applications.

Much of that growth has occurred since 2011, when ServiceNow named ex-Data Domain CEO Frank Slootman to succeed Luddy as CEO—and Luddy shifted into a more familiar role as chief product officer. But Luddy said that making the transition was one of the most stressful periods of his life.

Before Slootman joined the company, Luddy said he was initially unsure whether he should continue as CEO, or shift to a more familiar role in software development. He recalled that Sequoia Capital partner and ServiceNow board member Doug Leone took him on a tour of several Silicon Valley software companies, so he could meet CEOs and talk with them about their jobs. The process helped him realize that he didn’t have the kind of CEO skills that ServiceNow needed, “and I had no interest in acquiring them.”

Fred Luddy

It may sound funny, Luddy told the audience, but “I wake up every morning, and all I want to do is write code.” Nevertheless, it was still hard to hand over control of the company to Slootman.

“When Frank came in, we had some famous fights,” Luddy said. Yet he conceded that the corporate culture at ServiceNow “had to become Frank’s culture. Our culture was very collegial, but it wasn’t really a culture of excellence and execution.”

Making that transition was a fractious and … Next Page »

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Are Qualcomm Layoffs a Disaster for San Diego—or an Opportunity?

Mon, 07/27/2015 - 10:48

After years of strong corporate and financial growth, the pace of change in the wireless industry has forced a massive global layoff at San Diego-based Qualcomm (NASDAQ: QCOM. If the wireless giant had only 1,000 employees, a layoff of 150 folks would not be big news. But with a worldwide payroll of 31,000, and a planned layoff of up to 4,700 people, the implications of this downsizing has San Diego concerned.

Leaving a company where you have worked for years is hard. It can happen many ways. It can be a personal decision, where one’s personal goals and a company’s direction no longer align, and leaving is the way to go. Or it can be where a company’s goals and organizational structure must be realigned to respond to changing business realities.

On a personal level, leaving a company, either voluntarily or laid off, sucks. I’ve been on both sides of the equation many times: laid off, having to lay off folks, or making a tough personal choice to depart a company. I spent almost 14 years at Qualcomm, from 1994 through 2008, and leaving Qualcomm is about as hard as it gets. Over the years, deep personal and professional relationships are built, all with the shared purpose of changing the world though advancing wireless. And as employees and the community know, Qualcomm has a unique culture, high energy, built on “doing your homework,” and by treating and compensating employees extremely well.

So does that mean that potentially thousands of layoffs by Qualcomm in San Diego represent a disaster? I don’t think so.

Even though this will be very hard for those laid off and their families, it could end up being a watershed moment on a community level. Thousands of highly skilled employees across a broad range of disciplines are going to re-enter the job market.  Most are early or mid-career. Many have advanced degrees, amazing global contacts, and have been trained and mentored by world-leading technologists. And most importantly, many will not want to leave San Diego.

So what’s going to happen?

These people are going to leave Qualcomm, be appropriately grumpy for weeks or months, or perhaps take well-deserved vacations, and then they are going to get back to work.

They are going to fill much-needed technical and business slots at other established companies in town, not only in wireless, but in application development, Internet of Things, and even find their way into San Diego’s exploding life sciences and genomics sectors. They are going to take “that idea they had” and start banding together, and found new companies in town. They are not done yet.

Thirty plus years ago, there was a fiftyish year old guy who built a company in San Diego doing some really high-tech stuff, mainly for satellites. He sold his company to a defense contractor back East, and over time became increasingly disenchanted with the direction the new owner was taking the company. He did not want to leave San Diego, but he left the combined company where he had been working for some time. In his own words, “I stayed on … until April 1, 1985 when some…management changes made it less interesting.” But he was not done either.

That was Irwin Jacobs.  Here’s an interesting “what if:”

What if the company where he was working had made it … Next Page »

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Companies May Stay Private as VCs Invest $32.5B, Report Says

Thu, 07/23/2015 - 08:00

As record levels of venture funding piles into startups, more companies may stay private rather than file for initial public offerings, according to venture capital database CB Insights and accounting firm KPMG.

Private companies raised more than $32.5 billion in the second quarter of 2015, with about half of the total coming from 61 deals that were worth more than $100 million each, according to a new report released by the firms this morning. That helped create some 24 so-called unicorns during the quarter—companies with a valuation of greater than $1 billion—a number that the researchers expect will increase.

That $32.5 billion total is the most raised in any quarter since the start of 2011, when CB Insights and KPMG started collecting data.

“If you told a company that they could raise almost the same amount of money at the same valuation in a private financing versus a public one, there is no question that companies would often choose to stay private longer,” Brian Hughes, who works in KPMG’s U.S. venture capital practice, said in the report. “Staying private gives the company more latitude to do what they need to do to grow their business for the long term.”

The report is the first in a series of quarterly data KPMG and CB Insights are initiating on venture capital investing worldwide.

Venture-backed companies raised $19 billion during the quarter in North America, a number that parallels stats reported by Dow Jones VentureSource last week. The activity during the first half of the year, both in North America and worldwide, indicates 2015 will be a blockbuster, if things stay on pace.

Companies raised $58.2 billion in North America during all of 2014, compared with $37.5 billion so far this year. Worldwide, investors contributed $88.3 billion of venture funding to private startups in 2014, not much more than the $60 billion spent so far this year, according to CB Insights and KPMG.

In the U.S., California VC activity last quarter outstripped any other state, according to the companies. Its companies raised $11.4 billion, while New York companies pulled in $2.2 billion, and Massachusetts startups reeled in $1.4 billion.

Texans took home $376 million in deals, while companies in the Pacific Northwest accounted for $489 million, according to the firms.

While valuations have been on the rise worldwide, they remain lower in Europe than in Asia and the U.S. That has attracted a greater level of U.S. investors to European deals, according to the research firms, which has in turn attracted investors from other areas of the world, too.

European companies raised $3.2 billion in the quarter, which was the second-largest amount since the start of 2011, only behind the $3.4 billion raised in the first quarter of this year, CB Insights and KPMG said. Asian companies raised $10.1 billion in the quarter, the largest since 2011.

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Are Humans the Key to Discovery in a World of Digital Abundance?

Thu, 07/23/2015 - 01:01

We are drowning in content. Blogs made everyone a journalist. Self-publishing made everyone an author. YouTube made everyone a filmmaker. iTunes made everyone a musician. Publishing houses, record labels, and newsrooms have lost their long-held position as gatekeepers of taste.

This is largely a good thing, particularly for aspiring artists. I’m a novelist. FG Press published my first two books and I self-published the third one. I didn’t need to send out dozens of submissions, suffer rejection after rejection, finally accept a contract with draconian terms, and endure a two-year production cycle before sharing my stories with fans. Digital media is a great equalizer and I don’t think there’s been a better time in history for creatives.

But as consumers, we face a seemingly intractable problem: the haystack is growing faster than the number of needles. Our feeds are crammed with click bait. Our reading lists are stuffed with titles from the slush pile. Our playlists are bloated with uninspired tracks. In a world of abundance, how do we separate signal from noise?

At first, the answer appeared obvious: challenge the digital horde with digital weaponry. Pandora uses algorithms to automatically generate playlists based on our preferences. Amazon uses algorithms to suggest new books based on our past purchases. Google News uses algorithms to serve up stories based on our interests.

But the elegance of an algorithmic solution belies its inadequacy. I stopped listening to Pandora years ago because its suggestions were so generic. Google News rarely challenges me with a story that forces me to think outside the box. Oh, and BTW Amazon, just because I read Harry Potter doesn’t mean all I want to read is young adult fantasy.

Computers can beat even the strongest human chess players but still lose to intermediate go players. That’s because after the first round of moves, chess has 400 possible board positions while go has 129,960. Winning a game of go is all about pattern recognition, something the human brain is uniquely good at. Taste, like go, is complex and endlessly branching.

The pendulum is swinging back. Technology companies are now hoping to solve the discovery problem with… humans.

Apple’s new music service employs DJs, editors, and tastemakers to craft individual playlists and handpick up-and-coming artists. Algorithms help listeners find curators that might share their taste, but the curators are living, breathing humans. The system also allows musicians to post photos and videos to help bring fans behind-the-scenes.

Product Hunt, a popular discovery platform for new tech, is addressing the problem by launching a books vertical today. Human readers post and discuss new books, which rise to the top as users upvote their favorites. They accompanied the release with a dedicated book club and a Reddit-esque ask-me-anything platform that gives fans intimate access to their favorite authors.

I’ve used both Apple Music and Product Hunt Books extensively, and neither are perfect. Apple has resurrected the gatekeepers, with all their attendant problems. Product Hunt lists books in a chronological feed, even though a book’s quality is rarely a product of its release date.

But both services have reinvigorated my enthusiasm as a reader and listener. Their suggestions have delighted and surprised me by delivering high-quality content that challenges my preconceptions. They may still be working out the kinks, but I’m bullish on a future of tech-enabled human curation.

It turns out that the secret ingredient we need to thrive in a world of digital abundance is, well, soul.

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In Biotech, Everyone’s Going Public. What’s Your Excuse?

Wed, 07/22/2015 - 07:30

Biotechs everywhere are going public these days. You might have heard.

Approaching the traditional market lull in August, we’re up to nearly 40 life science IPOs in 2015, by my own count, with plenty more lined up. That’s more than half way to last year’s mark and already past the 2013 total. I weighed in on the bubble talk in April, so I won’t rehash that parlor game here.

But it’s fair to say, like in any hot market, companies of all stripes—and of all levels of quality—are leaping through the IPO window. So what does that say about companies that have tried and failed to go public? Yes, they exist, too.

Once in a while, the change of plans is revealed along with a merger or big licensing deal. Sometimes a company instead opts for more private money, as we’ll see below. The companies I’m highlighting here—a small sample from the past couple boom years—decided at some point that the tradeoff of public scrutiny for access to public cash was worth it. They ended up with the scrutiny by opening a window onto their finances and strategy, but not with the cash.

For companies ambivalent about that tradeoff—and there are other reasons not to go public, too, such as keeping tighter control—current U.S. regulations are supposed to minimize the need to reveal too much. It’s now permissible to speak more freely with potential investors, to “test the waters,” as the provision is known, before making the commitment to bare secrets in public documents.

But biotech investor Peter Kolchinsky of RA Capital Management in Boston says talk is cheap when it comes to private conversations. “Some companies that rely on just ‘testing the waters’ before an IPO may misread everyone’s politeness as representative of their genuine desire to invest at a particular valuation, which can lead to disappointment once the IPO process flips to its public phase and those investors are asked to formally commit,” Kolchinsky says.

Kolchinsky’s public-oriented fund often takes stakes in private biotechs for prime position in an upcoming IPO. These so-called crossover investments are a hallmark of this boom, with hedge and mutual funds like Deerfield Management, Adage Capital Partners, Fidelity, T. Rowe Price, and many others showing up in private financings all the time.

Crossover investors in a biotech’s late private round are supposed to solidify future IPO demand and help avoid sudden U-turns. (RA Capital began its crossover strategy in 2012. Since then, Kolchinsky says no company that has taken one of its crossover investments has backed out of an IPO try.)

As we’ll see, the presence of a crossover investor doesn’t guarantee IPO success. And the lack of crossovers isn’t necessarily a recipe for flip-flopping. But for companies that postpone or withdraw IPO attempts, there is some kind of disconnect. Perhaps it’s a misjudgment of investor sentiment, or a re-evaluation of the need for privacy. Some companies, while backing off, say the IPO was something they only wanted if terms were ideal.

The following five companies are a small, diverse collection of stories that show how, even in this day and age, an IPO is no guarantee.

Gelesis: Let’s start with a company that said going public wasn’t a top priority. As my colleague Ben Fidler reported in May, Boston-based Gelesis, working on an unusual weight-loss product, pulled back from its IPO attempt, citing market turbulence.

It’s true that the biotech indices had spent about a month and a half, from mid-March to May, rolling and tumbling. Back in May, CEO Yishai Zohar—whose wife Daphne runs PureTech, Gelesis’s creator nine years ago and still its top investor, as of earlier this year—downplayed the import of backing away: “Given our strong cash position and clinical studies underway, our board has been weighing the relative benefits of being a public company at this time.”

What Zohar called a strong cash position—a phrase he repeated when I contacted him this week—was a $22 million financing round that arrived in April, and perhaps in the nick of time. In its S-1, filed on the same day it announced the financing, Gelesis said it had $2.6 million in cash at the end of 2014. (Zohar this week declined to discuss the company’s cash position beyond the figures in the S-1.)

One question public investors might have concerns regulation. Gelesis says its weight-loss pills will be considered medical devices, which face different approval standards than drugs. The pills contain a material made from cellulose and citric acid that expands in the stomach to give people a full feeling.

At the time of the IPO postponement, the company was digesting a 128-person, three-month study with middling weight-loss results, and it was in the midst of a 168-person, six-month trial that won’t reveal its data until the first half of 2016. (That timeline remains in place, says Zohar.) The Gelesis prospectus said that FDA would want to see better results from the six-month trial: the pills would have to result in at least three percent more weight loss than placebo overall, with at least 35 percent of patients losing at least five percent of their body weight. In Europe regulators might require a five percent loss over placebo.

The six-month trial, dubbed GLOW, could serve as a final test before … Next Page »

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Rock the House—from Silicon Valley to China

Mon, 07/20/2015 - 07:01

It’s that time of the quarter, when venture capital fundraising data are released by the National Venture Capital Association (NVCA), possibly leaving all the sophisticated investors across the industry wringing their collective hands about frothiness. The latest data shows that VCs in 2Q15 raised over $10.4 billion (slightly revised upward from the amount first announced earlier this month) across 74 funds—this is a 39 percent step-up from the amount raised in 1Q15 and a 27 percent increase from 2Q14. This is the largest amount raised since 4Q07—do you remember what happened in 2008? Wow.

As usual, the headlines tend to mask some important developments one sees when wading through the data. The VC industry continues to consolidate around a limited number of managers who raise large funds with large Roman numerals attached to them. There continues to be evidence that limited partners will occasionally support smaller, very focused funds, but the land of mid-sized funds continues to shrink; only 9 of the 74 funds were between $100million and $300 million in size (disclosure: my firm—Flare Capital Partners—announced this quarter a $200 million fund which we believe is ideally suited to focus intensely on early stage opportunities, yet be “life cycle” investors who support our entrepreneurs across every round).

On a trailing quarter annualized basis the VC industry is tracking to raise $40 billion this year, which would be the most raised in nearly 15 years. A related announcement last Friday on investment data showed that VCs invested $17.5 billion in 2Q15, implying an annual investment pace of nearly $70 billion. This $30 billion projected “funding gap” for 2015 is largely filled by non-VC investors (hedge funds, corporates, sovereign wealth funds, mutual funds), who arguably are looking for greater returns than what is available elsewhere in other asset classes. The question this begs is, How will these investors behave when the tide inevitably turns? The other concern imbedded in all of this is one of absorption—that is, can the VC industry “productively” deploy $35 billion across 4,000-odd companies this year?

As of the end of 2014, the NVCA estimated that the VC industry had about $160 billion of assets under management. Over the last 15 years, the industry was well in excess of $200 billion in size. But given that some firms could not raise funds during the recession, and many funds that did were much smaller than they had been, the industry naturally shrunk. The concern I have is that it might expand again too rapidly.

Now for some interesting nuggets from the detailed data in the fundraising reports:

  • Of the 74 funds raised, 31 (42 percent) were considered “new funds,” but these only raised $1.3 billion or 13 percent of the total
  • Average size of “new funds” is $43 million, which is overshadowed by the $212 million average size of the “follow-on” funds raised—clearly success begets success
  • The largest “new fund” raised, Geodesic Capital, was $250 million, while New Enterprise Associates raised the largest overall fund of $2.8 billion (not counting a separate $350 million side-car fund)—so limited partners will dabble with new managers but just not too much
  • The Top 10 funds raised $7.2 billion or 70 percent of the capital attracted in 2Q15
  • The Bottom 10 raised $14.3 million or 0.14 percent of the capital—not a typo
  • Seven of the Top 10 funds are based in California and represent $6.3 billion
  • In fact, overall, California funds accounted for $7.7 billion or 74 percent of capital raised
  • And while 18 states were represented on the list, outside of California, Massachusetts, and New York, fund managers in those other 15 states raised just $1.1 billion or 11 percent of the capital

California, specifically Silicon Valley, always leads the way—typically about 60 percent of all dollars raised are invested each year in California-based companies. What is notable here is the extreme level of concentration of the underlying fund managers. When so much of the capital is managed in a single geography, are we at risk of creating an “echo chamber” that drives herd/irrational behavior? Does this naturally lead to the overfunding of new categories as each firm wants its own portfolio company in a given category?

And as a point of comparison, given that I grew up in Hong Kong and remain fascinated about the emerging capital markets in China, that market always provides a provocative juxtaposition. The last few years have ushered in extraordinary change in China: the capital flows are staggering and now so are the volatility and issues of absorption—will VCs start too many undifferentiated companies? Some interesting—almost unbelievable—data coming out of China this past quarter:

  • 4,000 new hedge funds were launched in 2Q15, mostly focused on equity investments, and funded principally by the emerging class of 90 million new retail—aka individual—investors
  • There are now 12,285 hedge funds in China employing 199,000 people, according to the China securities regulatory authorities
  • Year-to-date 2015, $452 billion of public and private equity – that is billion with a “b” – was raised in China, according to J Capital Research
  • There is estimated to be $320 billion of short-term margin loans outstanding; these typically have a 6-month duration, much of them held by these new retail investors—now, with these loans beginning to come due, the recent volatility in the Chinese stock exchanges starts to make more sense.  Citigroup estimated that some $4 trillion of equity valued was lost—this is twice the size of India’s economy
  • That is nothing, though—$8.5 trillion of debt has been issued in China year-to-date, and when combined with the $1.1 trillion of corporate bonds issued, this brings the total China debt load to over $28 trillion

Now that will be fun to watch play out…

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Sharing Economy Companies Sharing the Heat In Contractor Controversy

Fri, 07/17/2015 - 18:27

For some time, Uber and other Silicon Valley tech companies have been fighting off lawsuits and other claims that their labor practices are unfair to on-demand workers they classify as independent contractors rather than as employees.

The heat intensified this week on a number of fronts. The issue took center stage in the intensifying presidential campaign as Democratic candidate Hillary Clinton questioned a core assumption of the sharing economy—that both consumers and workers benefit when tech companies tap into the services of people in an on-demand relationship rather than as employers.

Clinton, while expressing support for tech innovation, said in a speech about her economic policies in New York on Monday that what she called the “gig economy” raises hard questions about workplace protections. Technological innovation is too often polarizing, she said, benefitting high-skilled workers while displacing or downgrading blue-collar jobs.

Following that Monday speech, the U.S. Labor Department issued guidance that may put further pressure on tech firms, AP reported. In a non-binding directive, the department’s wage and hour division said workers who are “economically dependent” on an employer should be treated as employees. Regulators usually have looked at factors such as how much control employers exercise over workers and their time to determine whether they actually qualify as independent contractors.

Meanwhile, Uber continued its ongoing battle with California regulators over their right to oversee its transportation model, which deploys non-staff drivers to provide rides for customers scheduled through the company’s mobile app. On Wednesday, an administrative judge for the California Public Utilities Commission concluded that Uber should pay a $7.3 million fine because it has resisted the agency’s demand for detailed records about rides it has facilitated, the Los Angeles Times reported. The judge also recommended that Uber’s service in California should be suspended.

In that case, the CPUC is trying to find out whether Uber drivers respond to ride requests from disabled travelers. But the case also addresses the same underlying issue seen in the contract worker controversy—whether the new ways of operating in the sharing economy model should be subject to the same regulations governing traditional businesses. Under California law, for example, taxi companies are obliged to serve disabled customers.

Applying state law to Uber’s workforce practices, the California Labor Commission held in June that an Uber driver who challenged her status as an independent contractor should in fact be treated as an employee.

Whether or not this week marks a watershed in the resolution of the contract worker controversy, there were signs that the on-demand tech sector is shifting its stance. Two San Francisco companies are changing their hiring policies, while another is going out of business.

Online grocery delivery service Instacart announced Monday that it would extend the option to become employees to personal shoppers—now classified as contractors—who assemble food orders at stores for delivery to Instacart customers.

Instacart said it had first offered the option a few weeks ago at its outlets in Boston and Chicago. This week, the company announced that the employment opportunities would be expanded to Atlanta, Miami, and Washington, DC. The offer of part-time jobs applies to shoppers who are “embedded” in stores. Instacart said it would extend the new policy to other cities among the 16 where it operates.

A fledgling on-demand startup, San Francisco-based Eden, also plans to convert its contract workers into employees, CEO and co-founder Joe Du Bey (pictured above) told Xconomy.

Eden, just founded in March and now part of this summer’s Y Combinator class, arranges in-home technical help on demand for customers who can’t get their laptops, iPads, or other devices to work right. Eden now employs about 25 “Tech Wizards” working as contractors at $30 an hour.

Du Bey says the company has learned during its short time in operation that it will remain more competitive if its Tech Wizards are employees. Bringing the technical helpers into the company fold will allow Eden to train them in a broader range of troubleshooting skills, coach them in customer relations, and teach them to “represent the brand,” he says.

“The customer experience, for Eden, is our North Star,” Du Bey says. Eden is growing in San Francisco and plans to expand outside the city. It announced this week it has raised a $1.3 million seed investment from Canvas Venture Fund, Eniac Ventures, Comcast Ventures, Maven Ventures, Y Combinator, and other investors.

While well-heeled companies such as Uber may be able to stave off regulatory actions with litigation, Du Bey says, competitive forces are likely to impel one class of on-demand companies to bring their contractors in-house. That class consists of companies such as Eden, which provide services that require a significant amount of training, he says.

“The world is telling a lot of companies that being low-cost isn’t enough for experiences that are high-touch,” Du Bey says. Companies such as Uber, which rely on common skills like driving, may always need to … Next Page »

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MoneyTree Shows Drop in San Diego VC Funding, and Top 15 Deals

Fri, 07/17/2015 - 01:00

At a time when venture capital investments hit $17.5 billion nationwide—the highest quarterly level in 15 years—VCs invested only about $141.5 million in the San Diego region, according to MoneyTree data released today.

Second-quarter venture funding in San Diego was down about 48 percent from the previous quarter, when the MoneyTree Report found that venture firms invested over $270.6 million here. It also was down 38 percent from the second quarter of 2014, when VCs sank $227.5 million in San Diego.

The MoneyTree Report is prepared each quarter by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.

VCs invested in 23 deals in San Diego during the second quarter—about 20 percent more than the 19 deals in the first quarter, and about 17 percent lower than the 27 companies that got venture funding in the same quarter last year.

Eight biotech companies accounted for $55 million of the total invested in San Diego, while five software companies got $62.5 million.

The software deals included a $20.5 million round that closed in early June for Nervana Systems, a San Diego startup that specializes in “deep learning” technology, a form of artificial intelligence that attempts to identify meaningful information from patterns in large data fields.

Deep learning technology “is intended to think about computation in a whole new way,” Nervana Systems CEO Naveen Rao said yesterday afternoon. Rao said he founded Nervana Systems in early 2014, after leaving Qualcomm’s neuromorphic research group with two co-founders, Amir Khosrowshahi and Arjun Bansal. They raised $600,000 in initial funding, and in August, Nervana raised another $3.3 million in a round led by Draper Fisher Jurvetson.

Nervana intends to apply its technology in multiple markets, including the Internet of Things, finance, agriculture, the oil and gas industry, and retail, Rao said. The company currently has 28 employees.

The San Francisco venture fund Data Collective led Nervana’s latest round, which was joined by AME Cloud Ventures, Allen & Co, DFJ, Fuel Capital Management, Lux Capital, the Omidyar Network, and an undisclosed investor.

Asked about the climate for venture capital funding in San Diego, Rao said, “We really wanted to be connected with the local startup scene and venture capital in San Diego, but we found that it moved at a pretty glacial pace. Folks in San Diego literally wanted to do a two-to-three month process.”

The top 15 deals in San Diego, according to MoneyTree, are:

Kyriba: Corporate treasury management software, $21.1M
Nervana Systems: Deep learning software and hardware, $20.5M
Classy: Online fund-raising platform for charitable causes, $18M
Adrenergics: Diagnostic biotechnology, $10M
Cadherx Therapeutics: Biotechnology, $10M
Calporta Therapeutics: Biotechnology, $10M
Ankasa Regenerative Therapeutics: Biotechnology, $8.5M
Hera Therapeutics: Biotechnology, $6.5M
MOGL Loyalty Services: Web-based customer loyalty program, $5.2M
RuiYi: Biotechnologies,  $5M
MicroPower Technologies: Security and surveillance electronics, $4.7M
Omniome: Healthcare services, $3.9M
Metacrine: Biotechnology, $3.5M
OneRoof Energy: Renewable (solar) energy, $3M
ScoreStream: Web-based software for recreational sports and games, $2.9M

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West Coast Biotech Roundup: Receptos, ProNAi, Protagonist & More

Thu, 07/16/2015 - 19:45

Once again, the big West Coast news of the week came from an East Coast company, Celgene, making it rain. (That’s a figure of speech, unfortunately. Out here, rain would be about as welcome as a cure for cancer these days.) Tuesday, Celgene (NASDAQ: CELG) said it would pay $7 billion-plus to scoop up San Diego’s Receptos (NASDAQ: RCPT), which has taken a promising drug for autoimmune diseases into advanced clinical trials. Two weeks ago, it was Celgene’s billion-dollar deal with Seattle’s Juno Therapeutics (NASDAQ: JUNO), and back in April, it was the purchase of tiny Quanticel Pharmaceuticals, a Stanford University spinout, for potentially $485 million. At this rate, Celgene will have sewn up rights to half of the West Coast by Halloween. There was other news, of course; let’s round it up.

—Protagonist Therapeutics of Milpitas, CA, tapped Canaan Partners and a few crossover investors for a $40 million Series C round. The cash will push its lead program, a treatment for irritable bowel disease, into the clinic by the end of 2015. Protagonist and its backers feel that its drug technology—oral versions of peptides—will give it an advantage over injectable autoimmune disease treatments, such as the one Receptos is developing.

—Vancouver, BC-based ProNAi Therapeutics (NASDAQ: DNAI) is a newcomer to the coast; it moved from Michigan last year. The cancer drug developer is also a newcomer to the public markets, having just raised $138 million in an IPO. At the end of its first day of trading Thursday, shares closed at $30.80, up 81 percent over the $17 IPO price.

—In the Alzheimer’s study lawsuit that Xconomy San Diego editor Bruce Bigelow is following closely, a San Diego judge this week denied the University of Southern California’s request for a restraining order against the University of California, San Diego, that would have cut off UCSD’s access to the study’s database.

—In Seattle, new wellness company Arivale announced a $36 million Series B round of funding and plans to expand to San Francisco this fall. Based on a longitudinal health study at Seattle’s Institute for Systems Biology, Arivale is charging customers $2,000 a year for extensive health screening and monitoring, with notifications and coaching when a customer’s data indicates a potential health problem.

—Five Prime Therapeutics (NASDAQ: FPRX) of South San Francisco, CA, paid $10 million to San Diego’s Inhibrx for rights to its antibody technology, which is focused on a protein known as GITR. The technology could be useful in cancer immunotherapy. Five Prime could pay Inhibrx more than $400 million in future milestones, depending on the success of the collaboration.

—Researchers at the University of Washington, in collaboration with researchers in Texas and Australia, have developed a new type of malaria treatment that could only require a single dose. It is now in human trials sponsored in part by the nonprofit Medicines for Malaria Venture. The paper describing the academics’ preclinical work was published this week in Science Translational Medicine.

—Bloomberg reported that FDA has had a conversation with a Google (NASDAQ: GOOG) researcher who co-wrote a paper in 2013 about using search records to identify drug side effects. The FDA has also been working with patient advocacy platform PatientsLikeMe and other West Coast tech companies on the problem of tracking drugs’ untoward effects.

—San Francisco VC Steve Burrill was sued by the managers of his former fund for fraud, as first reported by the Wall Street Journal. The fraud accusations surfaced last year in a previous lawsuit brought by former employees of Burrill’s firm, as Xconomy reported at the time.

—Rare disease drug maker Ultragenyx Pharmaceutical (NASDAQ: RARE) of Novato, CA, raised $264 million in a public stock offering, with the potential to raise another $40 million.

—South San Francisco drug maker Cytokinetics said that $1.5 million of the $100 million-plus raised by the Ice Bucket Challenge last year will help pay for a Phase 3 trial of its drug tirasemtiv for amyotophic lateral disease, or ALS.

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Orphan Drug Maker Chiasma Raises $101.8M in IPO

Thu, 07/16/2015 - 13:55

Orphan disease drug developer Chiasma raised $101.8 million in its initial public offering, $20 million more than the upper end of the Newton, MA-based biopharma company’s previous projection.

Chiasma (NASDAQ: CHMA) is using most of the money to build out its U.S. sales and marketing operations as it readies itself for the potential launch of its lead therapy that targets acromegaly. The condition, which can lead to death, is caused when the pituitary gland releases excess human growth hormone, subsequently elevating the body’s insulin levels.

It increases the size of bones in the limbs and face. Andre Roussimoff, better known as Andre the Giant, suffered from it. The condition is typically treated with injectables, and Chiasma is seeking to gain regulatory approval of an oral treatment.

Chiasma has completed a Phase 3 trial for a drug, oral octreotide, which is a natural inhibitor of human growth hormone. It submitted a new drug application on June 15 to the FDA, and already has orphan drug designation.

It is one of multiple companies developing therapeutics based on peptides that can be swallowed like pills instead of injected into the bloodstream. Peptides can have certain capabilities chemical drugs lack and can reach targets that protein-based drugs can’t—but they are fragile and break down easily in the body, as Xconomy’s National Biotech Editor Alex Lash wrote in a story about Protagonist Therapeutics.

Protagonist, which announced a $40 million venture round today, is testing its drug in inflammatory bowel disease. Celgene (NASDAQ: CELG) is paying $7.2 billion deal to buy San Diego’s Receptos (NASDAQ: RCPT), which is studying its lead drug candidate in late-stage trials for ulcerative colitis and multiple sclerosis. Ulcerative colitis is an inflammatory bowel disease that can damage the colon.

Chiasma also plans to use some of the proceeds on pursuing a Phase 3 trial in Europe for the treatment, as well as starting a Phase 2 trial for it in treating neuroendocrine tumors, Chiasma said in regulatory filings. The company also plans to select a second product candidate in 2016, and initiate pre-clinical development of a third the following year, it said in a filing.

In the IPO, Chiasma sold 6.4 million shares at $16 per share. It had hoped to sell 5.4 million shares for $13 to $15 each.

The stock opened at $20.50, and rose to $21.61 as of 11:40 a.m. in New York.

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Protagonist Nabs $40M, Eyes 1st Trial Of Oral Peptide In Gut Disease

Thu, 07/16/2015 - 08:30

Protagonist Therapeutics thinks it has solved a biological riddle, and several investors are shelling out $40 million to help test the company’s solution in humans for the first time before the end of 2015.

If that first trial goes well, Protagonist’s investors might start dreaming of a big payoff. The drug being tested is in the same therapeutic space—irritable bowel disease, or IBD—that Celgene (NASDAQ: CELG) has been spending lavishly to enter, most recently with its $7.2 billion deal to buy San Diego’s Receptos (NASDAQ: RCPT), announced Tuesday.

The Series C round, led by Canaan Partners, will pay for a Phase 1 trial, which will involve healthy volunteers. If successful, the drug PTG-100 would move on to IBD patients, whose own immune systems attack the lining of their intestines.

IBD can manifest as ulcerative colitis, with the damage centered in the colon, or as Crohn’s disease, in which the entire gastrointestinal tract can be affected. (Receptos’s lead drug, which Celgene is so eager to acquire, is in late-stage trials for ulcerative colitis and multiple sclerosis. Celgene also paid $710 million upfront last year to under-the-radar Irish firm Nogra Pharma for rights to a Crohn’s disease drug.)

With all that deal making and a lot of other competition in the IBD space, Milpitas, CA-based Protagonist thinks it can go one better with an unproven type of drug. It is developing therapeutics based on peptides that can be swallowed like pills instead of injected into the bloodstream.

Peptides are naturally occurring chains of amino acids, like proteins, but they are smaller, more fragile, and break down easily in the body. But because of their size, pharmaceutical versions of peptides can get to molecular targets that protein-based drugs, like monoclonal antibodies, can’t reach. And because of their role in nature, peptides can do things that traditional chemical drugs can’t, like disrupt two proteins that come together to cause disease.

That’s the allure of using them, with various chemical tweaks, as drugs. Several have been approved over the decades, such as the now-generic glatiramer (Copaxone) for multiple sclerosis and liraglutide (Victoza) for type-2 diabetes, and dozens are in development. One of the most ambitious programs is from Aileron Therapeutics, in Cambridge, MA, trying to attack one of cancer’s most intractable targets.

Protagonist is one of the few companies developing versions to be swallowed instead of injected. “Making them orally stable is a much higher hurdle,” says CEO Dinesh Patel (pictured), who oversees a staff of about 25 people. The drugs must run the gut’s gauntlet—acidic environment, digestive enzymes, the trillions of resident microbes—to reach their targets.

PTG-100 will aim for a target (alpha-4-beta-7 integrin) that, in an immune system gone haywire, acts as a homing device for certain immune cells to attack the lining of the gut. Shut down the signal, and the attack cools down—that’s the basic idea.

But it’s not just Protagonist’s idea. They’re going after the target because it’s already been “validated”—drug-world speak for tested and affirmed—by the antibody vedolizumab (Entyvio) from Takeda Pharmaceutical, which the FDA approved last year. (An historical note: the antibody originally came from the Cambridge, MA-based biotech LeukoSite, which was acquired by Millennium Pharmaceuticals and subsequently by Takeda.)

Julie Papanek of Canaan Partners, who is joining the Protagonist board of directors, said that such previous work was important in her decision to invest. “Protagonist has the benefit of drafting off of the clinical data generated by FDA-approved drugs like Entyvio and other a4b7 integrin inhibitors in development,” she said.

Protagonist has a second oral peptide aimed at IBD via the protein IL-23, which has become a popular target for autoimmune drugs. That drug is a bit farther behind PTG-100. The company hopes both will outpace Takeda’s approved injectable antibody and a host of other IBD competitors, not just because of the convenience of avoiding needles with an oral once-a-day dose, but because they would be safer for patients. Antibodies against autoimmune disease carry the risk of suppressing the good side of immune function, too, leaving patients vulnerable to infections.

But comparisons will take time to play out. The first glimmers of safety data for Protagonist’s oral peptides will likely emerge next year from the upcoming Phase 1 trial. Beyond that, the current $40 million round should take PTG-100 into small Phase 2 tests, but a much larger trial to prove safety and efficacy will require more funding, says CEO Patel. Protagonist also wants to develop products for diseases beyond the GI tract; those programs are farther down the road.

Another frontier in IBD treatment is the gut microbiome, the trillions of microorganisms whose interactivity with their human hosts is the subject of intensive research, and even a few forays into drug development. At least one microbiome-related drug has reached the clinic. “A time will come when there will be more simplicity and elegance in drug development by focusing on the microbiome,” said Patel. But right now, making peptides that travel through the gut to deliver a therapeutic punch is cutting-edge enough for him.

The Series C round also brings new investors Adage Capital Partners, RA Capital Management, Foresite Capital, a trio of healthcare specialist hedge funds that often take stakes in private biotechs considering a run at an IPO. Previous investors Johnson & Johnson and Eli Lilly, through their venture funds, Pharmastandard International, and Starfish Ventures also joined the round.

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Judge Rejects Court Order Requested in Fight Over Alzheimer’s Study

Thu, 07/16/2015 - 02:41

A San Diego judge denied the University of Southern California’s request for a temporary restraining order against UC San Diego yesterday afternoon, as the two universities continued their fight for control of a nationwide study on Alzheimer’s disease.

USC submitted its request for the order Tuesday, alleging that officials at UC San Diego had somehow gained “superuser” access through Amazon Web Services to the computer system and database for the Alzheimer’s Disease Cooperative Study (ADCS). UC San Diego founded the ADCS in 1991 as a kind of joint venture with the National Institute on Aging to facilitate the discovery, development, and testing of new drugs for treating Alzheimer’s disease.

The legal dispute began in June, after USC hired scientist Paul Aisen and at least eight colleagues who had been overseeing the ADCS at UC San Diego.   Aisen joined UCSD in 2007 to serve as director of the Alzheimer’s study.

Aisen left UC San Diego on June 21 to become the founding director of USC’s new San Diego-based Alzheimer’s Therapeutic Research Institute.

In a civil lawsuit filed July 2, UCSD alleges that Aisen and his team conspired with USC to misappropriate the ADCS by changing computer access codes and passwords so they could maintain their administrative control of the Alzheimer’s program at USC. The program currently has about $100 million in both federal and private funding.

USC sought the court order after discovering that UCSD officials had gained root access (i.e. full administrative access) to the ADCS computer system and the database storing clinical trial data and other research collected over the past 24 yeas.

But in a ruling issued yesterday afternoon, San Diego Superior Court Judge Judith Hayes wrote “there was nothing surprising about the fact that UCSD was able to persuade Amazon to restore access to the account to UCSD.” As the judge noted, “uncontroverted evidence” showed that UCSD had paid $96,000 to establish the account with Amazon Web Services in the first place.

In a comment apparently aimed at Aisen and his team, Hayes wrote, “There is no evidence that [UCSD] has damaged any data maintained in the [ADCS] system, or that [Aisen and his team] have a right to access the system outside of their previous employment.”

The judge added that USC’s claim that UC San Diego could disrupt the entire ADCS system and the clinical trial data stored there “appears at this time to be speculative and without support in the record.”

Meanwhile, lawyers for UC San Diego interviewed Aisen yesterday, after the two sides had worked out a schedule for taking his deposition, along with two of his staffers, in accordance with an order Judge Hayes issued on July 8.

After Hayes issued her ruling yesterday afternoon, USC issued a statement to The San Diego Union-Tribune, saying that the litigation initiated by UC San Diego “appears to serve no legal purpose” since UCSD is suing for something it already has: control of a clinical trial database.

“The situation is a standoff. UCSD controls the database, and USC employs the researchers and staff who know how to use it.”

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Venture Investing Hits Record $19B in Second Quarter

Thu, 07/16/2015 - 01:01

[Updated 7/17/15, 7:40 a.m. See below.] There’s plenty of talk about a potential bubble in the market, whether in tech, biotech, or elsewhere. True or not, one fact that’s real is that there is plenty of money flowing into startups. The second quarter of 2015 produced the highest level of venture funding since at least 2010, and possibly longer, according to data released by Dow Jones VentureSource.

The $19.2 billion raised from venture capital firms during this spring and early summer is more than any single quarter since the start of 2010, when the VentureSource data starts. The next closest was the $17.7 billion raised in the fourth quarter of last year, according to the data.

The second quarter of 2015 produced lots of deals, too, at 1,034. The only time there have been more deals in the last 4.5 years was in the second quarter of 2014, which counted 1,038.

Venture funding in the second quarter of 2015 was the highest level since 2000, according to the MoneyTree Report, which may track different deals. That report, compiled by PricewaterhouseCoopers and the National Venture Capital Association using data from Thomson Reuters, recorded the second quarter’s funding at $17.5 billion. [MoneyTree data added throughout—Eds.]

Those numbers indicate there may have been plenty of small venture agreements made across the nation. Only three companies received fundings above $500 million: San Francisco’s Airbnb and YourPeople, as well as Greenwood, CO-based FourPoint Energy.

Most of the record-level funding is once again thanks to San Francisco, the data show. The city was responsible for $9 billion of the state’s nearly $11 billion of total venture funding. Deals such as Airbnb’s $1.5 billion late-stage round, as well as Credit Karma’s $175 million Series D, helped San Francisco contribute almost half of the national $19 billion total. (See VentureSource chart below.)

Venture Funding By City

Not everyone had a blockbuster quarter. Venture investments in Texas dropped dramatically to $290.4 million for the three months ended June 30, down 65 percent from the prior quarter. Most of that money was given to Irving, TX-based OneSource Virtual during a $150 million venture round in June. MoneyTree recorded slightly lower numbers at $237 million for the state.

During that slower period, smaller firms took the lead by investing in more deals, according to the VentureSource data. Capital Factory, the Austin-based incubator and accelerator, invested in four deals, more than local firms Silverton Partners and LiveOak Venture Partners. They each found three.

Austin investments accounted for 18 of the state’s 28 deals, though only 36 percent (about $104 million) of the total venture funding for the state, according to the data.

At the opposite end of the spectrum, Colorado had a great quarter with $872.7 million invested, up from $87.3 million in the first quarter of 2015, according to the VentureSource data. But $619 million of that came from a single deal: the aforementioned FourPoint Energy investment on June 30.

Foundry Group was the most active investor in the state with four agreements. While it may not be the smallest firm, with more than $1 billion under management, it still is willing to invest in smaller seed financing. It’s had plenty of success, too, such as with the recent IPO for Fitbit.

MoneyTree’s results show a far smaller dollar amount at $330.3 million total for Colorado. It doesn’t include the FourPoint funding in its list.

Boston had its third-highest quarter of funding since 2010, raising $1.31 billion through 97 deals.

Similarly, New York had its best quarter since the VentureSource data starts. Companies in the city raised almost $2.9 billion. It has outraised Boston for five quarters straight, despite Boston maintaining historically higher numbers. MoneyTree accounted for $2.3 billion of deals in New York and did not provide data for Boston.

That will be little consolation for Seattleites, who lost more than just a Super Bowl to Boston. They also came in far behind in the fundraising race, with only $444.45 million. The MoneyTree data showed $434.9 million in Washington.

Likewise, San Diego was exceedingly outmatched by its big brother to the north. The city raised $116.3 million on 22 deals during the quarter. There was $141.5 million worth of funding in the city, according to MoneyTree.

North Carolina was able to pull in more money for its 16 deals, raising $122.45 million during the quarter. More than half of that came from three first-round raises in April for drug developers: Innocrin, Spyryx Biosciences, and Precision BioSciences. (MoneyTree provided no data for North Carolina.)

Companies in Michigan raised $46.2 million, led by a $10.5 million third-round deal for NeuMoDx Molecular, according to MoneyTree.

VentureSource did not provide data for Detroit, and neither company offered data for Wisconsin.

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Celgene to Acquire San Diego’s Receptos for $7.2B in Cash

Tue, 07/14/2015 - 18:50

[Updated 7/14/15 5:15 pm. See below.] Drug maker Celgene (NASDAQ: CELG), based in Summit, NJ, has agreed to acquire San Diego-based Receptos (NASDAQ: RCPT) in a cash deal valued at $7.2 billion, the two companies announced today.

Receptos, founded in 2009 and headed by CEO Faheem Hasnain since 2010, has been developing drugs that target the spaghetti-like structures on the surface of cells known as G-protein coupled receptors. The deal is expected to enhance Celgene’s portfolio in inflammation and immunology drugs, which has one approved product, apremilast (Otezla) for psoriasis and psoriatic arthritis.

[Updated with comments from conference call] Shares of Receptos climbed to $228.20 in after-market trading, gaining slightly more than $21 a share or 10 percent. Celgene is paying a 41 percent premium over Receptos’s closing price on March 31, when reports of takeover interest in the San Diego biotech first surfaced on Bloomberg.

In a late-afternoon conference call with investors and analysts, Celgene’s top executives focused in particular on the potential value of Receptos’s leading drug candidate, ozanimod, which has begun late-stage trials for treating both ulcerative colitis and relapsing multiple sclerosis.

Although MS trial data is not expected until 2017 (and not until 2018 for ulcerative colitis data), Celgene chairman and CEO Bob Hugin said ozanimod is a potential multi-billion dollar drug, with projected peak sales of $4 billion to $6 billion. Hugin and other Celgene executives said ozanimod is significantly differentiated from existing drugs for MS and inflammatory bowel disorders, and so far appears to be safe and highly selective.

As a result, Celgene raised its financial targets, saying total net product sales by 2020 should exceed $21 billion, up from the previous target of $20 billion. Celgene also raised its projected earnings per share for 2020 from $12.50 to more than $13.

News of the deal comes just weeks after Celgene reached a billion-dollar partnership with Seattle’s Juno Therapeutics (and its technology for engineering T cells to fight cancer) and announced plans to buy back as much as $4 billion worth of Celgene shares. In April, Celgene agreed to pay AstraZeneca $450 million for rights to MEDI4736, a so-called checkpoint inhibitor drug targeting certain blood cancers.

If that sounds aggressive, Celgene isn’t backing off.

“We have been extremely fortunate to have the ability to act on opportunities for sustained and enhanced long-term growth,” Hugin told analysts during the call. He later said, “We look to build Celgene where we can create value,” Hugin added, saying at another point, “The price we paid is very fair value.”

CFO Peter Kellogg noted that the Juno and AstraZeneca deals were both done with “offshore cash,” referring to cash generated from overseas sales (not subject to U.S. tax) and are held in overseas accounts.

Celgene plans to close the Receptos deal by the end of September, using a combination of cash and debt.

Hugin and Kellogg also noted that Celgene’s financial performance during the first half of 2015 was outstanding across the board, with strong improvements in revenue, margins, and operational excellence.

Celgene is scheduled to report its second-quarter financial results on July 23, but today disclosed preliminary net product sales of $2.25 billion for the quarter. Analysts had projected an average of $2.24 billion, according to Bloomberg News. Preliminary earnings for the quarter increased to $1.23 a share (from 90 cents); well beyond analysts’ estimated $1.13 per share average.

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Milestones Of Innovation 10: First Close-Up Of A Planet

Tue, 07/14/2015 - 07:00

Today, NASA’s New Horizons spacecraft, after more than nine years, 3 billion miles, and a brief view of Jupiter’s moon Io, is scheduled to capture the first close-up pictures from the distant minor planet Pluto and its flock of moons. It’s a fine way to celebrate the 50th anniversary of this kind of high-tech virtual visit to other worlds.

On July 14, 1965, a U.S. space probe called Mariner 4 swept from north to south across the planet Mars and sent back to Earth a strip of 22 photos of a surface that didn’t seem to offer much hope of life on the Red Planet. There was no hint then of what numerous later flights revealed: strong signs of water and other life-favoring factors in the past.

The Mariner 4 fly-by carried at least one important lesson about innovation: many new things are little-foreseen byproducts of projects that were started for completely different reasons.

In February 1954, some 11 years before Mariner 4’s visit, a secret American committee headed by John von Neumann (one of the fathers of the computer) and including future MIT President Jerome B. Wiesner, made a momentous recommendation to President Eisenhower. The committee said that the U.S. should go all-out to match an expected maximum Soviet effort to develop intercontinental missiles to carry atomic and hydrogen bombs. And right afterward, another secret committee that Ike asked for, headed by MIT President James R. Killian, spelled out a plan to develop multiple generations of ICBMs by about 1961. Further, the gap would be filled with an array of intermediate-range missiles based on land and sea that could be ready sooner.

And in 1957, as part of a peaceful project to probe the entire earth scientifically, an experimental Soviet ICBM startled humanity by putting a scientific satellite called Sputnik I into orbit. Sputnik’s “beep, beep” signals triggered an immediate contest for prestige between communism and capitalism—and dramatic new missions for ICBMs. There was a frenzied “Space Race” to put up more scientific robots to reach the Moon and the planets, along with satellites for communications, weather observation, navigation, and spying. Less than four years after Sputnik, the U.S. had committed itself to sending human pilots to the Moon and back by the end of 1969.

As a consequence of Cold War competition, humanity was getting its first detailed photographs of Mars, a planet that long had been a favored destination in science fiction, including Ray Bradbury’s “Martian Chronicles” of the late 1940s. With mistaken sightings of “canals,” Mars had become the source of decades of speculation about whether life could exist on a surface much further from the sun than Earth and bathed in an ultra-thin atmosphere of carbon dioxide.

The photos were tape-recorded aboard Mariner 4 and then transmitted across 134 million miles to big antennas across the Earth. From there, they were sent to be pieced together, pixel by pixel, on screens at Jet Propulsion Laboratory in California. Just to make sure, the whole transmission was repeated.

It was the modest opening of a spectacular era of human discovery, decades in which the people of today became, as the late astronomer and television guru Carl Sagan observed, the first generation to obtain a torrent of facts, not fantasies, about other bodies in our Solar System.

Craft after craft soared up from Earth and reached all the planets, and many of their moons, along with asteroids and comets, gathering not only pictures but much other data about the planets’ chemical makeup, lumpiness, and magnetism. One craft called Voyager flew by Jupiter and Saturn in succession on its way out of the Solar System. A second Voyager went on a Grand Tour to Jupiter, Saturn, Uranus, and Neptune and then kept going. Often, the robot explorer craft got there with gravity boosts from swinging by one planet on the way to another. Often they went into orbit for months or years, capturing thousands of images from which detailed maps could be made. Around Jupiter and Saturn, craft called Galileo and Cassini could visit moons again and again and study the planets’ rings of rocks and dust. Cassini even sent down a lander to Saturn’s moon Titan. At Venus, the orbiters carried radars to map an oven-hot surface buried beneath the clouds of a carbon dioxide atmosphere 100 times thicker than Earth’s. At Mars, the orbiters sent down camera-equipped ground stations and even rovers that could roam the surface. At Mercury, Messenger orbited for four years and then, running out of fuel to stabilize its course earlier this year, was sent crashing into the surface.

Other robot observatories, orbiting the earth, added knowledge about the planets. The Hubble Space Telescope, which celebrated its 25th year aloft in June, captured dramatic photos in 1994 of a comet called Shoemaker-Levy smashing into the planet Jupiter.

From all this activity, tapping the Electronic Revolution for more and more sophisticated instruments and data analysis, automated space explorers from several countries not only deepened scientific understanding of our local cosmic neighborhood but also allowed us to live imaginatively in real places throughout our solar system.

[Editor’s Note: This is the tenth of a series of notes about major anniversaries in innovation and what they teach us. You’re invited to suggest other milestones of innovation for the Xconomy Forum. Example: This year will mark the 75th anniversary of the wind-driven collapse of “Galloping Gertie,” the Tacoma Narrows suspension bridge.

Further Reading:

Henry S.F. Cooper, ‘A Resonance With Something Alive,’ The New Yorker, June 21, 1976 [Profile of Carl Sagan]

Henry S.F. Cooper, The Search for Life on Mars: Evolution of an Idea, 1980

Henry S.F. Cooper, Imaging Saturn: The Voyager Flights to Saturn, 1983

Henry S.F. Cooper, The Evening Star: Venus Observed, 1993

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New Allegations Fly in Universities’ Fight Over Alzheimer’s Study

Tue, 07/14/2015 - 01:13

The fight between UC San Diego and the University of Southern California over an Alzheimer’s study escalated yesterday in a flurry of legal filings, with each school seeking emergency relief by asking a judge to issue court orders against the other side.

[Updated 7/14/15 1:40 pm ] San Diego Superior Court Judge Judith Hayes, who is presiding over the litigation, adjourned today’s hearing ordering that depositions in the case should proceed. Both sides raised fresh allegations of wrongdoing, and Hayes took those arguments under advisement. The judge said the hearing would resume tomorrow morning if needed.

The two universities are locked in a power struggle for control of the Alzheimer’s Disease Cooperative Study (ADCS), a nationwide research program founded 24 years ago as a kind of joint venture by the National Institute on Aging and UC San Diego.

In a civil lawsuit filed July 2, UCSD alleges that former UCSD scientist Paul Aisen and at least eight colleagues who have joined Aisen at USC, conspired with USC officials to hijack the ADCS by changing computer access codes and passwords so they could maintain their administrative control of the Alzheimer’s program at USC. UC San Diego wants to regain control of the ADCS and resume its management of the program.

The ADCS was established to facilitate the collaborative discovery, development, and testing of new drugs for treating Alzheimer’s disease among a consortium of institutions throughout the United States and Canada. The program gets about $100 million in both federal and private funding.

In a filing Monday, UC San Diego asked the judge to issue court orders compelling Aisen and several USC colleagues to produce documents and testify in a deposition after they failed to produce documents or to appear for a deposition yesterday in accordance with instructions Judge Hayes gave at a hearing last week. UCSD also has asked the judge to appoint a special master to ensure judicial orders are followed.

In a separate filing, USC requested the judge to issue an emergency restraining order that would prevent UCSD from using “superuser” access to the ADCS computer system and database until the court has decided whether oversight belongs with USC or UC San Diego. In a statement, USC said experts on Aisen’s team discovered late last week that UC San Diego had somehow gained superuser access (i.e. full administrative access to the system and database).

A USC spokesman said USC did not participate in the scheduled depositions because the discovery of UCSD’s access, and the need to request an emergency restraining order took precedence.

In response to a query from Xconomy, a statement released by UC San Diego explained that Aisen had put his own name on the Amazon Web server account where the ADCS database is stored. Amazon Web Services later determined that UC San Diego is “the rightful owner of the Amazon account,” and provided officials at UC San Diego with root access to the account.

According to the statement, however, “Dr. Aisen and his new colleagues at USC are continuing to exercise control over the data in the account; we do not currently have exclusive administrative control, which we are entitled to by law.”

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Analysis: NIH Guidelines Appear to Support UCSD in Alzheimer’s Study

Mon, 07/13/2015 - 11:29

[Updated 7/13/15 5:15 pm. See below.]  It’s a little hard to score the fight after the first court hearing adjourned last week in a lawsuit between UC San Diego and the University of Southern California over a nationwide study of Alzheimer’s disease.

The UC Regents filed the civil lawsuit against USC and former UCSD scientist Paul Aisen on July 2, alleging that USC conspired to hijack the Alzheimer’s Disease Cooperative Study (ADCS) while it was recruiting Aisen to lead its new Alzheimer’s institute. Aisen had been overseeing the study for UCSD since 2007.

By hiring Aisen from UC San Diego, USC gained an early advantage because Aisen has retained his authority over the computer system and database where ADCS clinical trial data has been stored for the past 24 years, according to filings by both sides in the case.

UC San Diego wants to regain control over the Alzheimer’s data and resume its management of the study. In its lawsuit, UC San Diego alleges that Aisen and at least eight colleagues (who have joined Aisen at USC) changed computer passwords to retain their custody and root control of the ADCS system, essentially locking out UCSD from administrative control of the Alzheimer’s study.

But as Aisen put it in a statement last week, “I left UCSD, not the ADCS.”

The scientist maintains that he’s done nothing wrong—and his continued management of the program is necessary to ensure the integrity of the research and its data. According to The San Diego Union-Tribune, Aisen said, “I believe what I did was obviously in the interest of science and public health. I am very comfortable with the decision I made.”

USC likewise expressed its disappointment that UC San Diego sued Aisen and his team, as well as USC, “rather than manage this transition collaboratively, as is the well-accepted custom and practice in academia.”

But what, exactly, is the standard procedure for handling a federally funded research program after the principal investigator moves from one academic institution to another?

In response to a query from Xconomy, the office of extramural research at the National Institutes of Health provided a link that describes NIH policy in detail, and summarized the process:

“Principal investigators (PIs) on an NIH grant must contact NIH through their institution to seek prior approval for a change of institution. NIH grants are made to institutions, not to individuals. When a PI moves to another institution, the original grantee institution frequently agrees to relinquish the grant to the PIs new institution but NIH must approve this transfer. If the original grantee institution does not wish to relinquish the grant, they must seek NIH approval to appoint a new PI to the grant. NIH must assess whether the project can continue under the new scientific leadership at the original institution, and if so will approve a change in PI. If not, the grant is terminated.”

A spokesman for UC San Diego, when shown the NIH statement, wrote in an e-mail: “UC San Diego immediately notified NIH upon receiving Aisen’s resignation. At the suggestion of NIH, we appointed [William] Mobley and [Michael] Rafii as co-interim directors of ADCS. We are in the process of working with the NIH to confirm their appointment.”

[Updated with comment from Aisen.] In a statement released this afternoon by USC, Aisen said, “Our research program receives grants from several private and public sources. It would be premature to discuss the status of any specific award. We will have a large and vigorous research program regardless of which grants transfer to USC.”

The NIH statement appears to support UC San Diego’s contention that the contracts that control funding from the National Institute of Aging and pharmaceutical sponsors like Eli Lilly were awarded to UC San Diego—not Aisen. Moreover, a statement released by UC San Diego after the court hearing asserted that UCSD—not Aisen— “is contractually obligated by its agreements with the NIH and research partners to maintain and safeguard data from clinical studies conducted by ADCS. ”

According to the UCSD statement, Aisen and USC have prevented UC San Diego from carrying out those contractual obligations. What Aisen has done, UCSD says in the statement, is  “akin to taking another’s keys and car without permission because you believe you’re a better driver.”

Undeterred, Aisen has rallied support for his cause. USC submitted letters to the court supporting Aisen from four prominent ADCS-funded scientists—Harvard’s Reisa Sperling, Yale’s Christopher van Dyck and Stephan Strittmater, and Wake Forest’s Suzanne Craft. They all emphasize that in the short term, Aisen and his team are best equipped to manage day-to-day operations of the Alzheimer’s study until the dispute can be resolved.

Another letter from Eli Lilly & Co., which is funding a landmark ADCS study intended to test whether an experimental drug can slow the memory loss associated with Alzheimer’s, warns that any “near term action to remove administrative control from the study leaders (Aisen and Sperling) could jeopardize patient safety, study quality, and otherwise negatively impact our ability to fulfill our sponsor obligations.”

However, the letter from Lilly also states, “Regarding the A4 study data, the current contract states that it is jointly owned by Lilly and UCSD.”

Whether this means the Alzheimer’s study will move to USC, stay with UC San Diego, or result in some kind of shared oversight will likely depend on negotiations that haven’t yet begun between two research universities that are still snarling at each other.

Paul Aisen

So what’s at stake in this fight?

UC San Diego and the National Institute on Aging (NIA) founded the ADCS in 1991 as a kind of joint venture to facilitate the discovery, development, and testing of new drugs for the treatment of Alzheimer’s disease. The program coordinates Alzheimer’s research among 35 primary and 50 affiliate research sites throughout the United States and Canada. Total funding for the program from both federal and private sources amounts to about $100 million.

But the fight for control of the program clearly comes at the expense of collaborative research efforts, and might even affect progress on potential Alzheimer’s therapies.

In response to a query from Xconomy, an NIA spokeswoman wrote in an e-mail that the NIH agency overseeing Alzheimer’s study wants to assure “participants, the ADCS network of sites, and the research community that we are aware of this situation and are doing everything we can to support the ADCS and keep it moving forward.”

In an official statement, the NIA concluded: “The NIA’s goal is to ensure that operations of the ADCS network continue as seamlessly as possible, with a focus on the safety of study participants and the integrity and utility of data from ongoing ADCS studies.”

In Southern California, the stakes include a broad effort—led largely by USC—to build a new hub for life sciences innovation in Los Angeles. Fueled by a fund-raising campaign that has raised $4.3 billion since 2011, USC has been aggressively recruiting elite scientists in a quest to boost its prestige.

If successful, a proliferation of biotech, pharmaceutical, and medical device companies in Los Angeles would presumably strengthen the industry throughout Southern California—unless of course a schism opens between life sciences leaders in Los Angeles and San Diego.

The San Diego Superior Court judge handling the dispute issued no rulings last week, and continued the hearing in the matter until July 24.

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Five Lessons Every App Startup Should Learn

Mon, 07/13/2015 - 04:00

Mobile devices create plenty of pitfalls for entrepreneurs.

The nuances of nailing not only the on-screen user experience, but the broader experience of integrating a piece of software into one’s everyday life dramatically increases the risk of failure. As a mobile entrepreneur, you have more variables that you need to test and control in your race to find a product-market fit before your company is out of runway.

For those investing time and money into building a mobile app startup, here are five important lessons that could be a game-changer for your startup.

1. Hire small teams of good people

Mobile app startups should approach the hiring process with caution— you simply cannot afford to waste time on unnecessary recruitment or bad hires. Early on, a good rule of thumb is to wait until it is excruciating NOT to hire someone, then pull the trigger. By really understanding the need you must fill, you’ll be much more likely to hire the right person for the right job. Otherwise, if you hire too quickly, your headcount will eat up cash and you’ll be more likely to have the wrong people in the wrong roles.

Assuming you’ve created the right roles, how do you find the right people? It’s nothing new to use your culture as a means of attracting the right people and forcing the wrong ones to seek employment elsewhere. What most companies fail to realize, however, is that culture is not just a ping pong table in the office or a mission statement on the wall. It’s an emergent quality in the people that you hire. The goal is to hire good people who have personal experience with the problem you are trying to solve. Early on it’s important to have at least a few key team members that need and want your app to solve a real problem in their lives. The key to building a great app is to hire a committed group of good people and let them create the solution to the problem at hand. Small mobile teams can accomplish huge feats quickly.

2. Don’t put scalability above market fit

Finding and then fine-tuning product-market fit is a never ending process, particularly for mobile app startups. The biggest mistake you can make is to build a huge scalable system for your app before understanding where it fits in the market. And in an age where VCs are more inclined to invest in platforms than apps, you have to be particularly aware of the tip-of-the-iceberg problem: The customer never sees the part of the product that requires 90 percent of the engineering work.

An example: In its beginnings, Twitter wasn’t overly concerned with scalability, which meant that the site would crash on occasion. The Twitter “fail whale” displayed during difficulties, eventually becoming a quirky and beloved symbol of the company’s meteoric rise. Periodic crashes aside, Twitter focused its efforts on building a super simple product that people all over the world loved to use. Today, they are a multibillion-dollar company that can afford to invest in scalability, unlike brand new startups who have yet to convince the world that they need their app.

3. Speed is a startup’s greatest resource

In the app business, timing plays an important role in finding product market fit. As a mobile startup, your job is to get found fast, which increasingly means looking for ways to reach customers outside of the app stores. To do this, you need an incredible amount of speed and agility.

When a mobile app startup begins to enter into partnerships, it can lose some of the agility that put it in the position to sign a big customer or pursue a joint venture in the first place. Don’t sacrifice speed or ignore iterating on your product on the promise of a big deal.

The key to success is to make sure that you are constantly moving forward. Large opportunities should be seen as accelerants to your core business; they shouldn’t slow you down. The last thing you want to do is spend all of your time chasing a whale that might get away.

4. Self-reliance should be your true north

No partner is going to make your business an automatic success because no one cares about your startup as much as you do. Even if you’re venture-backed, the bootstrapping mindset can and should prevail. That kind of mindset gives the company resiliency and allows you to scale a team up at an organic pace.

So how do you become self-reliant? Make sure that you have a solid business model for your app as soon as possible. This will take some experimentation, but remember that very few companies grow so quickly that they have the luxury of figuring out monetization after they acquire hundreds of millions of users. If you can’t acquire customers for a less than they are worth, you are not in control of your own destiny.

5. Never underestimate the cost of good communication

From an operational standpoint, startup founders will do all kinds of things to improve efficiency. But almost nobody thinks about the operational impacts of communications.

Mobile app startups—and startups in general—are at an advantage in that communication can occur quickly relative to industry incumbents. As a company grows, it will have to develop new communication channels—and too often the default is to adopt the well-known practices of larger organizations. But there’s a huge gap between the whole company “stand-up” and corporate intranet. Working long hours is the entrepreneurial norm, but just how much of your day is spent on communication? If you find yourself working long hours, chances are you can streamline and improve your company’s communications. Time is your most important resource and intra-company communications are a great place to look for savings.

Ultimately, mobile consumer app companies benefit from a rapidly evolving industry and technology. This environment of constant change provides ample opportunities to those companies nimble enough to take advantage of them.

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The Near Death, and Second Life, of Cerulean Pharma

Mon, 07/13/2015 - 04:00

It’s not often that a biotech with a single drug in clinical testing can bounce back from a trial that not only fails, but bombs spectacularly. But by the skin of its teeth, Cerulean Pharma has gotten that chance.

Over the next year, Cerulean (NASDAQ: CERU) will produce data from four early and mid-stage clinical trials of its lead drug, CRLX101, in a variety of cancers, and in tandem with different mainstay cancer therapies like bevacizumab (Avastin) and paclitaxel.

These are make-or-break studies for Cerulean: it’s trying to show that its foundational idea—nanoparticle technology that can make highly toxic chemotherapy agents safer and more effective—holds water.

By doing so, Cerulean hopes its drug can be a valuable agent in the mix-and-match game of cancer therapy combinations—one more weapon to use in the armamentarium. Perhaps that’s a template Cerulean could use to link its nanoparticles to a variety of other chemotherapy drugs.

“These are exciting times around here right now,” says president and CEO Christopher Guiffre.

The excitement isn’t registering on Wall Street, however. In the midst of the immuno-oncology craze, companies priming the immune system to fight cancer—Juno Therapeutics (NASDAQ: JUNO), Kite Pharma (NASDAQ: KITE), and the like—are commanding multi-billion dollar valuations. Cerulean is trading under $5 a share, with just a $125 million market capitalization, and hasn’t spent much time on the Nasdaq north of its $7 per share IPO price. Shares have basically been treading water since Cerulean went public in 2014. Suffice to say, the company has a lot to prove.

But Guiffre (pronounced GWEE-free) will take that sentiment. Cerulean could have easily been dead in the water by now.

It was formed in 2005 to commercialize a nanoparticle drug delivery technology developed at MIT and Caltech that links cyclodextrin-based polymers to chemotherapies. With their new properties, the drugs are supposed to be too large to get into healthy tissues, but small enough to slip through leaky holes in the blood vessels that feed tumors and deliver a toxin over a sustained period of time.

Cerulean raised over $80 million from backers like Polaris Partners and Venrock, and in 2011, began its big test: a randomized, open-label Phase 2 study of 157 patients with lung cancer whose disease had progressed despite one or two prior therapies. The trial had the hardest possible goal for a cancer drug: to prove whether CRLX101, when combined with the best supportive care, could help patients live longer than on supportive care alone.

The stakes were high. As then-CEO Oliver Fetzer told Xconomy in 2013 just before the results came in, Cerulean wasn’t going after a “squishy” endpoint like keeping tumors from spreading (what’s known as progression-free survival). It was targeting “what really matters,” Fetzer said—extending peoples’ lives.

The assumption, Fetzer said, was that patients on the best supportive care would live a median of about five months. Cerulean figured it would be in great shape if its drug led to a nine-month median of survival. The results weren’t even close to those projections: Patients on Cerulean’s drug lived a median of 6.3 months. Those on other therapies? Almost double that, 11.9 months.

“The first reaction I actually had when shown the data was, oh they just flipped the arms—we must’ve had 12 months and the best supportive care must’ve had six,” says Guiffre, who at that point was Cerulean’s chief business officer. When Cerulean realized that wasn’t the case: “We said, ‘Oh my goodness, do we have a drug that’s killing patients?’”

Not quite. What Cerulean found was that it had made a massive error in trial design. As Guiffre tells it, Cerulean ran the study in Russia and the Ukraine—“mistake number one,” he says—so that it could compare CRLX101 against the best possible supportive care. The thinking: front-line therapies for lung cancer are very similar there to what they are in the West, but there isn’t a standard of care in Russia and the Ukraine that comes after you fail the first treatment; it’s not reimbursed.

So patients would be willing to be randomized two-to-one—CRLX101 and best supportive care versus best supportive care alone—because “if they get the treatment arm, they get a two-thirds chance of getting an active drug that would be helpful to them. And if they don’t, they have chance of getting free healthcare they otherwise wouldn’t get.”

“At the surface level, if you have a certain level of naivete, that sounds reasonable,” Guiffre says. “What we learned is, Russians and Ukrainians actually want to live as much as Americans.”

What Guiffre means is, patients in those trials didn’t just follow the protocol. They tried to get the best possible care they could, and that skewed the results.

Here’s how: In an open-label study, patients know what they’re getting. So patients had … Next Page »

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